Philippine rating upgrade ‘in 3 months’

The Philippines is expecting at least one more credit rating upgrade in the next three months, according to a research note by First Metro Investments Corporation and the University of Asia and the Pacific released on April 30.

It would most likely come from global debt-watcher Standard & Poor’s (S&P), which would upgrade the Philippines’ creditworthiness from its own rating of one notch below investment grade to investment grade, affirming the March 24 upgrade given by Fitch Ratings.

This is exactly what investors have been waiting for. While Fitch’s upgrade to investment grade on March 24 has been encouraging for the global business community, they have been waiting for another global debt watcher to upgrade the Philippines and confirm that it has become a new investment destination.

S&P, as well as Moody’s, may raise the Philippines’ credit standing once the government in Manila makes a breakthrough in addressing the country’s “key weaknesses” such as by implementing structural revenue reforms, reducing the government debt stock and accelerating investment spending, Barclays added.

However, the upgrades do not come without risks. At investment grade, huge amounts of speculative money is expected to flow into government bonds and currency trades, with the effect that the already strong Philippine peso will strengthen further, putting pressure on the export-oriented Philippine economy. For example, the strengthening peso has already led to shrinking service exports from the country’s BPO industry, eroding its low-cost advantage.

Furthermore, the Philippines stock exchange has reached new highs over the last months and is due for a correction, economists have warned.

The Philippines is expecting at least one more credit rating upgrade in the next three months, according to a research note by First Metro Investments Corporation and the University of Asia and the Pacific released on April 30.

It would most likely come from global debt-watcher Standard & Poor’s (S&P), which would upgrade the Philippines’ creditworthiness from its own rating of one notch below investment grade to investment grade, affirming the March 24 upgrade given by Fitch Ratings.

This is exactly what investors have been waiting for. While Fitch’s upgrade to investment grade on March 24 has been encouraging for the global business community, they have been waiting for another global debt watcher to upgrade the Philippines and confirm that it has become a new investment destination.

S&P, as well as Moody’s, may raise the Philippines’ credit standing once the government in Manila makes a breakthrough in addressing the country’s “key weaknesses” such as by implementing structural revenue reforms, reducing the government debt stock and accelerating investment spending, Barclays added.

However, the upgrades do not come without risks. At investment grade, huge amounts of speculative money is expected to flow into government bonds and currency trades, with the effect that the already strong Philippine peso will strengthen further, putting pressure on the export-oriented Philippine economy. For example, the strengthening peso has already led to shrinking service exports from the country’s BPO industry, eroding its low-cost advantage.

Furthermore, the Philippines stock exchange has reached new highs over the last months and is due for a correction, economists have warned.